The Uptick Rule of Short Sale Regulation: Can It Alleviate Downward Price Pressure from Negative Earnings Shocks?

This paper empirically examines the effect of the uptick rule (including the bid test applicable to NASDAQ stocks) of short sale regulations on stock prices and short selling activities immediately after negative earnings surprises that occurred during the period of May to November 2005. It compares price paths and short selling activities of stocks restricted by the uptick rule with stocks that were exempted from the rule as a result of the SEC\u27s Pilot Program. The study has not found any evidence that prices of stocks subject to the rule declined at a slower speed than prices of exempted stocks at times of stress. Tho two groups of stocks had similar levels of short sale volumes despite the rule\u27s prohibition on short selling at minus or zero-minus ticks. For NYSE and AMEX stocks, this study shows that market short orders whose immediate executions were barred by the uptick rule found execution opportunities against the upcoming buy orders within 15 minutes after their conversion into limit orders at the legally shortable price. For NASDAQ stocks, this study shows that up bids occurred with high frequency after negative earnings surprises and jointly with price improvements they offered generous execution opportunities to short sale orders. This study lends support to tho SEC\u27s recent suspension of the rule in absence of severe market conditions

The Performance Disclosures of Credit Rating Agencies: Are They Effective Reputational Sanctions?

The SEC has recently added new provisions to the credit rating agency regulation. These provisions require credit rating agencies to disclose publicly their rating actions and performance measurements. The new requirements seek to achieve two goals: (1) deter conflicts of interest in the credit rating industry by invoking the reputational sanction power of performance statistics, and (2) help new entrants to the industry build a track record so they can compete with established agencies. This paper reveals empirical evidence that the current disclosure requirements cannot achieve these goals and makes recommendations on how the regulation should be improved in light of consumer choice research and cognitive science findings on effective communication

Shareholder Inspection Rights: From Credible Basis to Rational Belief

Jurisdictions are split on the standard of proof for shareholder inspection lawsuits when inspections are for the purpose of investigating managerial misconduct. Delaware and its followers apply a credible basis standard that calls for extrinsic evidence, beyond mere suspicion, curiosity, or disagreement with management, to permit an inference of misconduct. A minority of jurisdictions require shareholders to show merely a rational belief that mismanagement likely happened. Rational belief can be satisfied by sound logic without referencing extrinsic evidence. The Delaware Supreme Court rejected rational belief for fear that a permissive standard would lead to a cascade of frivolous inspections, although numerous factors suggest otherwise. This paper offers the first empirical verification of the court’s assumption. The Delaware Supreme Court also dismissed shareholders’ argument that credible basis was an insurmountable obstacle to their exercise of statutory inspection rights, reasoning that the standard had only barred inspections in a couple of cases out of a “myriad” of inspection lawsuits. This paper is the first to offer empirical evidence that the court grossly underestimated the deterrence effect of credible basis. The paper shows that both the evil of frivolous lawsuits under rational basis and the evil of over-deterrence under credible basis exist, but the latter overshadows the former in magnitude. The paper suggests that the court adopts rational belief for inspection lawsuits against private companies where credible basis poses the biggest problem, and simultaneously implements cost-shifting for inspections items that impose an onerous burden on the target corporation

On Regulating Conflicts of Interest in the Credit Rating Industry

This paper discusses issues giving rise to conflict of interest concerns in the credit rating industry and examines whether and how those issues are addressed in the current regulation that builds on the guidelines of the Credit Rating Agency Reform Act of 2006, the SEC rules that were initially adopted in 2007 and recently amended in 2009, and the internal code of conducts of rating agencies. The examination leads to a conclusion that conflict of interest at the individual rating analyst level and some concerns of conflict of interest at the agency level have been largely addressed in the current regulation, but conflict of interest arising from the issuer-pay business model and influences of large subscriber clients of rating agencies remains a concern. To address this concern, the paper proposes changes to the current regulation to enhance ex-ante risk disclosure and sharpen ex-post performance reporting requirements

Limited Liability Partnerships: An (Overlooked) Hole in the Shield

There is a split of judicial authority on whether limited liability applies when the creditor is a partner of a limited liability partnership. The New York Court of Appeals narrowly interpreted the partnership statute and denied the applicability, but the California Court of Appeals upheld it. The difference has been overlooked by the legal and business communities. This paper shows that the narrow interpretation is inconsistent with the legislative intent, laden with procedural obstacles in enforcement, and inharmonious with settled legal doctrines and tenets of law-making

No Peeking: Addressing Pretextual Inspection Demands by Competitor-Affiliated Shareholders

This article exposes how Delaware private companies are vulnerable to pretextual inspections under the guise of valuation by shareholders who are affiliated with competitors of the companies. The Delaware Court of Chancery’s 2020 decision in Woods v. Sahara Enterprises, Inc., which deviated from established law by switching the initial burden of proof of the shareholder’s motive to the target company, exacerbated this vulnerability. This article argues for reversing that decision and proposes changes in multiple areas of law to help companies fend off prying competitors who abuse statutory shareholder inspection rights for unfair advantages in competition

Limited Liability Partnerships: An (Overlooked) Hole in the Shield

There is a split of judicial authority on whether limited liability applies when the creditor is a partner of a limited liability partnership. The New York Court of Appeals narrowly interpreted the partnership statute and denied the applicability, but the California Court of Appeals upheld it. The difference has been overlooked by the legal and business communities. This paper shows that the narrow interpretation is inconsistent with the legislative intent, laden with procedural obstacles in enforcement, and inharmonious with settled legal doctrines and tenets of law-making

Do Differences in Pleadings Standards Cause Forum Shopping in Securities Class Actions?: Doctrinal and Empirical Analyses

Federal appellate courts have promulgated divergent legal standards for pleading fraud in securities fraud class actions after the Private Securities Litigation Reform Act (PSLRA). Recently, the Supreme Court of the United States issued a decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd. that could have resolved these differences, but did not do so. This Paper provides two significant contributions. We first show that Tellabs avoids deciding the hard issues that confront courts and litigants daily in the wake of the PSLRA\u27s heightened pleading standard. As a consequence, the opinion keeps very much alive the circuits\u27 disparate interpretations of the PSLRA\u27s fraud pleading standard. To be sure, Tellabs might ultimately be applied by lower courts to narrow the range of permissible approaches to satisfying the strong inference standard, but leaves a good deal of room within which wide variations in approach will continue. Our second contribution is empirical in that we seek to answer the question: do plaintiffs\u27 attorneys take advantage of the differences among the circuits\u27 interpretation of the pleading standard to select more favorable venues to file their cases, as some scholars have claimed? We find that 85 percent of the securities fraud class actions in our sample are filed in the home circuit of the defendant corporation. While we find that the differences in the circuits\u27 pleading standards do not have a statistically significant impact on the plaintiffs\u27 choice of venue, we find that plaintiffs are more likely to file low-value cases in jurisdictions other than the one in which the defendant\u27s headquarters is located

Partonic flow and ϕ\phi-meson production in Au+Au collisions at sNN\sqrt{s_{NN}} = 200 GeV

We present first measurements of the $\phi$-meson elliptic flow ($v_{2}(p_{T})$) and high statistics $p_{T}$ distributions for different centralities from $\sqrt{s_{NN}}$ = 200 GeV Au+Au collisions at RHIC. In minimum bias collisions the $v_{2}$ of the $\phi$ meson is consistent with the trend observed for mesons. The ratio of the yields of the $\Omega$ to those of the $\phi$ as a function of transverse momentum is consistent with a model based on the recombination of thermal $s$ quarks up to $p_{T}\sim 4$ GeV/$c$, but disagrees at higher momenta. The nuclear modification factor ($R_{CP}$) of $\phi$ follows the trend observed in the $K^{0}_{S}$ mesons rather than in $\Lambda$ baryons, supporting baryon-meson scaling. Since $\phi$-mesons are made via coalescence of seemingly thermalized $s$ quarks in central Au+Au collisions, the observations imply hot and dense matter with partonic collectivity has been formed at RHIC.Comment: 6 pages, 4 figures, submit to PR

Measurement of Transverse Single-Spin Asymmetries for Di-Jet Production in Proton-Proton Collisions at s=200\sqrt{s} = 200 GeV

We report the first measurement of the opening angle distribution between pairs of jets produced in high-energy collisions of transversely polarized protons. The measurement probes (Sivers) correlations between the transverse spin orientation of a proton and the transverse momentum directions of its partons. With both beams polarized, the wide pseudorapidity ($-1 \leq \eta \leq +2$) coverage for jets permits separation of Sivers functions for the valence and sea regions. The resulting asymmetries are all consistent with zero and considerably smaller than Sivers effects observed in semi-inclusive deep inelastic scattering (SIDIS). We discuss theoretical attempts to reconcile the new results with the sizable transverse spin effects seen in SIDIS and forward hadron production in pp collisions.Comment: 6 pages total, 1 Latex file, 3 PS files with figure